Chinese Stock Market Collapse--Impact to US Colleges and Universities

Parent Cafe
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Sobering statistics to think about. For the 2013/2014 academic school year, there were 274,439 Chinese undergraduates at US colleges and universities. That was a 16.5% increase over the prior year. If one assumes a 10% annual growth rate in these numbers over the last two years, one would expect around 332,000 Chinese students.

Mostly, these Chinese students are full pay, and receive very little financial aid/loans, etc… As a result, they must rely entirely on their families.

Over the last 5-6 years, the huge increase in Chinese students attending US colleges and universities was the direct result of wealth achieved through extraordinary gains in the Chinese stock market. With the collapse of the Chinese stock market–bordering on a 1928 collapse–it is logical to conclude that many of the Chinese students will be unable to pay for college. More troubling is the timing of this collapse. This collapse is occurring right before the start of the school year–when tuition and room and board are due.

One must wonder how prepared US colleges and universities for this dramatic economic turmoil coming at the beginning of a school year. Many of these colleges and universities sold out their integrity by admitting foreign students with bogus academic credentials and ACT/SAT scores that are the result of systemic cheating throughout Asia. Now, they must face the consequences when these students can no longer pay full tuition.

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Interesting observation, @Overtheline – I had not thought about the impact. There are a lot of colleges that have closed the budget gap with Chinese funding.

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Many chinese moved money offshore with investments in the US west coast housing market, etc

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jym626–I agree with you on the flow of funds out of China to acquire West Coast real estate. But real estate is an illiquid investment. To pay tuition, one needs cash.

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most real estate investments (and mostly what the Chinese are buying here) is income producing. So it produces cash flow every month. I don’t see a huge drop off at all in Chinese students in the US. Most of their investments are either already offshore or they have so much money they can absorb the stock market hit. Chinese national place high value on a US education. I’m sure some will fall off but my guess not material. There’s almost 1.5 billion people in China, I think a few hundred thousand will still be able to afford to send their kids here.

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Agreed cameron. And many wealthy chinese have more than one piece of real estate in the US. So they refinance or sell one.

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If there are enough houses to be sold in order to pay for the tuitions and living expenses, will there be some relief in the appreciation of the prices of houses in, say, California?

I used to have a neighbor who was a new immigrant from Asian. They told me that their plan is to buy a house for each of their children next to whatever colleges they will attend. Their kids were preschoolers at that time. I was not sure whether they were just bluffing or they really will have the financial means to do so. But they moved to a wealthier area after a few years. They may indeed be capable of doing this unlike the rest of us.

Just a thought experiment here: Assuming that all of a sudden a half of the wealthiest 10% of families in US decide to immigrate to a particular country, UK or France, what impacts it would have on the receiving country?!

Not all Chinese are rich. But a very high percentage of immigrants from China are rich. The wealth of these families enables them to choose where they (or their offsprings) will live.

I think this is the phenomenon we are seeing here.

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So far, the Chinese market contraction affects mostly recent investors.

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My wife and I have considered a similar strategy (i.e. we would buy a small house or condo near the child’s university if the PITI was less than the cost of living in the dorms or an off-campus apartment). You’d have to be rich to do this if your children went to school somewhere like UCLA, but there are plenty of good schools in rural and suburban environments where the cost of housing is reasonable. You aren’t paying full price for the house or condo - just 20% down, and when your child graduates you can either sell the place to recoup most of that down payment, or keep the place as an income property. My wife and I would go even one step further. We would deed the places to our children to manage as their own income properties. This gives them a second income stream (albeit a modest one) right out of college, and when they get married, settle down and start looking for a family home, they can sell the income property and use the sales proceeds to help purchase the new home.

edited to add: I guess my point is that one doesn’t necessarily have to be rich to employ this kind of strategy.

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If China continues to meltdown, the impact will be much greater than some college students.

I am not optimistic.

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“Over the last 5-6 years, the huge increase in Chinese students attending US colleges and universities was the direct result of wealth achieved through extraordinary gains in the Chinese stock market”

Do you have a link to support this (i.e., it was the gains the Chinese stock market and not real estate investments abroad etc.)? For instance, wealthiest Russians do not give a rat’s behind about what the Russian market and the currency are doing - their investments are elsewhere:

http://www.marketwatch.com/story/collapsing-ruble-has-wealthy-russians-scrambling-to-invest-in-the-us-2014-12-17

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I agree that there are lots of foreign investors, especially from China, but wouldn’t they need the money to buy properties in the first place?
I never thought my brothers strategy of borrowing money to buy stock was a great idea, but he was gung ho.
Over in Seattle, recent immigrants are buying blocks and making them into compounds for their extended families, but they aren’t necessarily high end and I think the owners live there as well, but I could be wrong.

You dont have to be “rich”, to buy property, but the people I know who own more than their residence, have family money &/or inherited property, which I suppose counts as family money.

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“I agree that there are lots of foreign investors, especially from China, but wouldn’t they need the money to buy properties in the first place?”

Yes. That initial money did not come from investments in stocks though.

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BunsenBurner: To the best of my knowledge, there are no empirical studies explaining how Chinese families are affording tuition, room and board, and other costs, at US educational institutions.

But these are the undisputed facts: In 2008, there were 56,258 Chinese students at US colleges and universities. In 2014, there were roughly 274,000 Chinese students attending US educational institutions. Assuming average tuition/room and board of $37,000 (based on HSBC Bank’s 2014 report on the costs of studying abroad and assuming no financial aid or tuition discounts, Chinese students are spending $10 billion annually for their US educations.

The obvious question is where the extraordinarily large amount of money coming from? In all probability, its comes from three main sources: income (including graft); real estate profits; or stock market profits. Remember that China is moving from strictly communistic economy (with very little personal wealth and thus little to no inheritance) to a modern economy (with future inter-generational wealth transfer).

The average annual income in China (in US Dollars) is around $10,000 (US)–a number that most analysts concede is understated due to graft and under-the-table cash payments. But generally speaking, very few Chinese have regular income to afford US college tuition.

That, then, leaves the three other sources of wealth: savings, real property and the stock market. Up to around 10 years ago, most Chinese kept their savings in low interest rate bearing bank accounts. That changed in around 10 years ago, as Chinese chased higher returns.

Over the last 5-6 years, the Chinese real estate market exploded (during 2008/2009) and then had the bubble pop (2013/2014). Following the real estate bubble pop, the Chinese stock markets exploded over the last 2-3 years, and has now popped.

While I am not aware of any reported studies on how Chinese families afford US colleges and universities, there are anecdotes. In a Nov. 2012 opinion piece published by the Washington Post entitled “If China is doing so well, why do so many Chinese think of moving here?,” the author interviewed Chinese citizens. One Chinese citizen admitted making his money through work (public relations) and as a “stock market investor.”

There are have been several studies over the last one to two years about the rapid rise in Chinese millionaires and billionaires. The only plausible explanation for this outcome is this wealth is/was driven by the Chinese stock market. This explains why there are now 100,000+ more Chinese students at US colleges and universities from three years ago.

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Guess Miami condo developers might as well now scratch off their prospective buyers list Chinese investors.

http://www.wsj.com/articles/miami-condos-seek-chinese-buyers-1435777452

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It’s not just colleges. A number of high schools,also have started programs to attract (tuition paying) Chinese students. You have to wonder how these will be impacted as well.

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Maybe the “international school” project in the industrial center (middle of nowhere, really!) will now be scrapped. I’d be happy not to hear the local GOs squabble about it ever again!!

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http://money.cnn.com/2015/07/08/investing/china-stock-market-government-intervention/

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Excellent, now they are taking one out of the Fed’s playbook - govt buying securities to prop up the markets. Hope it works out for them…

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I’m not sure at all that this is accurate. There are lots of wealthy asians who have high incomes from current services provided and presumably this accounts for a lot of the full-pay asian students. Its not clear to me that its primarily a result of stock appreciation over the past five years.

Anytime there is a downturn in the economy, there is some effect. Big downturns have bigger effects. Lets see how this plays out over time.